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"Ofgem is clearly stating how serious it is about tackling unfair price differentials between payment methods."

Ofgem has shown that it is serious about tackling unfair energy pricing in the UK. The consultation paper, published on the 8th January, follows Ofgem's 2008 findings that unfair energy pricing affects a significant number of UK consumers, many of whom are considered 'vulnerable'.

"Ofgem has shown that it is serious about tackling unfair energy pricing in the UK. The consultation paper, published on the 8th January, follows Ofgem's 2008 findings that unfair energy pricing affects a significant number of UK consumers, many of whom are considered 'vulnerable'."

The Ofgem consultation paper includes four proposed measures which would force energy suppliers to tackle the issue of unfair pricing:

Proposal A: Suppliers will be unable to charge more unless there is a reason to do so. This is in view of the additional costs prepayment meter and cash settlement customers have to pay.

Proposal B: Goes further than proposal A by including price differentials caused by any discrimination that is not "cost reflective". This would allow Ofgem to tackle all unfair pricing, both in terms of payment method and also regional differences in best price tariffs.

Proposal C: Is an 'instead of' proposal B. This proposal suggests the introduction of relative price controls on energy prices based on set criteria. This would prevent suppliers from applying 'extra' charges; for instance for being in a different region or using a different payment method.

Proposal D: This proposal seeks to prevent suppliers from making a higher profit margin from electricity than gas, proportionately. Whilst there are justified reasons for suppliers doing this it does mean that households, such as flats, which can only receive electricity, are disproportionately affected.

"This is a consultation document, so it is difficult to say at this stage what the preferred proposal will be or indeed to what extent these proposals may change during the consultation process. What is important, however, is that with the publication of this paper Ofgem is clearly stating how serious it is about tackling unfair price differentials between payment methods."

"For consumers who pay on receipt of their bill, or use a prepayment meter, such measures should reduce the cost of their energy bills."

"Unfortunately consumers who pay on receipt of their bill or use a prepayment meter are often the 'fuel poor' and as such more unlikely to be able to pay their bills regardless of a price decrease. The affect of this will be that suppliers unable to make sufficient profit from these customers to pay for the additional administration that they require (such as debt management) could increase prices for Direct Debit customers to make up the shortfall."

Notes to editors
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